BayWa's predicament worsens significantly

Rewritten Article:

Baywa's restructuring plan continues to unfold, with recent turbulences casting a shadow over this agricultural trading company. The latest announcement declared a reduction of around 1,300 full-time positions, predominantly in administration and IT sectors in Germany, marking a significant turning point in the company's on-going struggles. This announcement follows the company declaring itself an insolvency case on July 12th.

The mass layoffs are attributed to Baywa's financial hardships and substantial debt burden, for which the previous management and supervisory board are accountable. As a result, the upcoming negotiations between management and the works council are anticipated to be a complex affair.

Bracing for larger-scale reductions

Staff cuts will be significantly more extensive than suggested by the recent announcement, according to industry insiders. As a point of comparison, Baywa's core workforce in its home market totals around 8,000 employees. With these layoffs, nearly one-sixth of the core workforce would be affected. It's essential to note that employees working abroad and those employed in majority-owned subsidiaries are not included in these numbers. The total group employment worldwide was approximately 23,000 as of the end of 2023.

deeram_enrichment:- Extensive job cuts are expected to be more extensive than what has been communicated by the recent announcement.

Deconsolidation effects play a key role

Given the decision made by lenders and the cooperative banking sector main shareholders, the group will be deconsolidated, and the company's approximately 600 subsidiaries will be broken up. One significant subsidiary, Baywa r.e., a solar and wind power projects company, employs around 4,000 people.

For Michael Baur, the restructuring expert from Alix Partners, who was appointed by the creditor banks and the Bavarian Volks- und Raiffeisenbanks, Baywa r.e. is considered a peripheral activity. This implies that a separation from the 51% stake is deemed inevitable, although the management has not confirmed this decision publicly.

Divesting from Baywa r.e. poses challenges

The market for such assets is currently oversaturated, with cheap products from China causing a strain. Selling Baywa r.e. independently would incur substantial additional costs, which Baywa may not have yet fully grasped.

regardless, it's almost certain that the additional expenses will be shouldered by the cooperative primary banks of Bavaria, because they (also publicly) provided support guarantees for Baywa. The liquidity aids provided by the creditor banks and the credit cooperatives, amounting to a total of 1 billion euros so far, are unlikely to be sufficient to sustain the group in the long term.

Risks of planned capital increase

The corporate consultants from Roland Berger, who were hired to assess the company's situation, have recommended a capital increase in the upcoming year. According to estimations by Börsen-Zeitung, the group's equity would be exhausted by mid-2025 if the deficits in the current quarter and the first half of the next 12-month reporting period match recent levels. As of September, equity was around 1 billion euros.

For the Volks- und Raiffeisenbanks, raising additional capital would pose both financial and timing challenges. The annual general meeting scheduled for May 27, 2025, might arrive too late to facilitate a capital increase under the pressure of time. Furthermore, the former SDax member's restricted registered shares are currently trading below 10 euros, following the recent market downturn, which corresponds to a market value of only 358 million euros.

Provisions likely to burden the year-end

Whether the pace of red figures and cash burn has increased or decreased in the year-end quarter will only become apparent by the end of January 2025, when preliminary balance sheet data for 2024 might be available. In the first nine months of this year, Baywa accumulated a group deficit of 641 million euros, seven times the loss recorded in 2023. Additional burdens are likely to arise from provisions for personnel reductions in the form of severance payments. Simultaneously, a temporary interest payment deferral by the creditor banks, announced in late summer, could offer some relief for the group. Due to the high interest expenses, Baywa recently recorded a deep red financial result.

The multitude of risks and pitiful financial figures suggest that Baywa will still face a bumpy path to reaching its planned restructuring completion by the end of 2027. The risks of setbacks for Baur and the credit cooperatives remain high.

The recent layoffs at Baywa, totaling around 1,300 positions, are predicted to be significantly less than the actual extent of staff cuts, as reputable industry sources claim.
Baywa's decision to deconsolidate and break up its approximately 600 subsidiaries could lead to the inevitable separation from one of its significant subsidiaries, Baywa r.e., which employs around 4,000 people.
As recommended by the corporate consultants from Roland Berger, Baywa is planning to pursue a capital increase in the upcoming year to address its current financial struggles.
In addition to the potential financial and timing challenges for the Volks- und Raiffeisenbanks in raising additional capital, the restricted registered shares of the former SDax member are currently trading below 10 euros, which could make a capital increase difficult due to a low market value.